Monthly Archives: March 2011

March 31, 2011

SEC Proposal: Use of Compensation Consultants and Other Advisors and Conflicts of Interest

Yesterday, as noted in this press release, the SEC unanimously proposed rules to implement Section 952 of Dodd-Frank that would direct the exchanges to adopt listing standards relating to compensation committees regarding their use of compensation consultants and other advisors as well as conflicts of interest. These rules ultimately will provide a more detailed definition of “independence” in the compensation context.

From scanning the proposing release that was posted last night, the proposed rules would not add much to Section 952, much to the chagrin of those who emailed me after the meeting and were expecting the SEC to come up with a rules package that the exchanges could just adopt. But even if the exchanges are charged with fleshing out the statute, the SEC surely will be heavily involved behind the scenes as often happens with new listing standards since the SEC must approve them.

Dodd-Frank requires that final rules in this area be adopted by July and the deadline for comments is April 29th. Even if final rules are adopted timely by the SEC, it’s still possible that listing standards may not be in place before the 2012 proxy season since I believe the July deadline doesn’t apply to the exchanges. Memos on the proposal are being posted in’s “SEC Rules” Practice Area.

ISS Policy Change re: Section 162(m) Equity Plan Proposals

Here is something that Cooley’s Amy Muecke blogged a few days ago on’s “The Advisors’ Blog“:

Recently, I learned that ISS has made a mid-proxy season policy change that may affect vote recommendations for equity plans submitted to stockholders solely for purposes of Section 162(m) approval. Historically, ISS has always supported these proposals agreeing that it is in the best interests of the stockholders for the company to be able to grant awards under a plan that satisfies the 162(m) requirements for performance-based compensation that is excludable from the $1M deductibility limitation.

Effective immediately, ISS will no longer automatically support Section 162(m) proposals submitted by “IPO companies” – that is, companies whose public company stockholders have not previously approved their equity plans. Instead, ISS will further analyze the plan and proposal to determine whether any problematic features are more detrimental than the potential loss of tax deductions and if so, ISS will recommend voting against the proposal.

Going forward, ISS signaled that it also may also further scrutinize Section 162(m) proposals submitted by non-IPO companies (i.e., companies whose public company stockholders have previously approved their plans), but it suggested that this year it is primarily concerned with Section 162(m) plans submitted by IPO companies.

Shareholder Proposals: Incentive Compensation & Risk Report Excludable If Too Broad

And here is something that I blogged last week on’s “The Advisors’ Blog“:

Recently, Corp Fin posted this no-action response to Wells Fargo regarding a shareholder proposal that asked the company to prepare a report “to describe the board’s actions to ensure that employee compensation does not lead to excessive and unnecessary risk-taking that may jeopardize the sustainability of the company’s operations. It further states that the report must disclose specified information about the compensation paid to the 100 highest paid employees.”

The Corp Fin response is interesting. It notes that incentive compensation paid by a major financial institution to those that are in a position to cause the company to take inappropriate risks is a “significant policy issue” – but then the Staff goes on to note that the proposal relates to the compensation paid to a large number of employees, thus falling into the “general employee compensation” line of no-action letters since it was not limited to senior executive officers. As a result, the Staff allowed the company to exclude the proposal under (i)(7) as an ordinary business matter.

This letter is interesting also because it presented the Staff with the opportunity to take the position that the general compensation practices that lead to excessive and unnecessary risk taking (and board actions to avoid such risk taking) raise significant policy issues, which would arguably bring its no-action positions in line with the disclosures that the SEC recently concluded should be required in proxy materials. Even though some might disagree with the Staff’s position, it at least avoided yet another exception to the general rule that proposals relating to general employee compensation relate to ordinary business matters and may be excluded under (i)(7). Thanks to Keir Gumbs of Covington & Burling for pointing this letter out!

– Broc Romanek

March 30, 2011

A Dearth of Whistleblower Complaints?

A few weeks ago, the NY Post ran this piece entitled “SEC whistleblower call draws few tipsters.” In it, the guy who runs the National Whistleblowers Center states he expected 3000 whistleblower complaints per year. Really? For 10,000 public companies – of which more than half are so small that there isn’t much to whistle about – I just think that number was completely unrealistic to begin with – dropping a zero would be more like it, if that…

Farewell to Bowne

With RR Donnelley’s acquisition of Bowne now complete, it is with fondness that I reflect back upon all those late nights at the printers. Over the years, as many of you have, I have sat through drafting sessions at all the printers but I understand that most of those days are behind us given email and other new technologies. Those were the days my friend…

Poll: My Favorite Financial Printer Moment

Please email me your favorite story about being at the printers (I will not share without your permission, as always). Here is a poll about your fondest memories of being at the printers:

Online Surveys & Market Research

– Broc Romanek

March 29, 2011

The Growing Push for Board Diversity

One area of governance reform not touched upon enough by Congress in Dodd-Frank or Sarbanes-Oxley is board diversity. It’s an important area to be concerned about – and not just for political correctness reasons. If all of the members of the board have similar backgrounds and experiences, the company’s management (and thus shareholders too) is not getting the benefits that come with having a truly diversified board (see the results in the studies mentioned in this memo).

There have been movements afoot overseas to “fix” undiversified boards when it comes to gender, including Norway (which has a mandatory quota!), Spain and Australia (yet there are still issues globally, as this blog notes). This recent UK report noted it would take 70 years to achieve gender-balanced boardrooms at the current rate of change. This report makes a set of recommendations to effectuate greater changes sooner. However, I’m not aware of much movement in the area of race-balanced boardrooms – and the debate over whether sexual orientation should be considered in a board matrix hasn’t even really begun.

As this speech by SEC Aguilar indicates (Aguilar has delivered numerous speeches on diversity recently), there can be improvement in the disclosures provided by some companies regarding this topic, as newly required under changes to Item 407 of Regulation S-K in late ’09. Of course, better disclosure doesn’t necessarily mean change in the boardroom.

One development that may help speed change here in the US is the idea of creating databases of diversified candidates for boards. I would hope that the director recruiting firms in this country already do something like this – but the idea of government giving a push might not be a bad one. Keith Bishop recently blogged about the possibility of California getting back into this business by resurrecting a director registry that it used to maintain. And DirectWomen is a great place to look for qualified women to serve on boards. We do have resources about this topic generally in our “Board Diversity” Practice Area.

I love Nell Minow’s recent article entitled “Corporate Boards — Still Pale, Male, and Stale.” I imagine that the opening quote in the article – from a CEO, “Oh, we already have a woman” – that was uttered many years ago could just as easily be said today by someone less informed…

Study: No Women on Over 40% of the World’s Largest Boards

Following up on the theme above, consider this new report from GovernanceMetrics International that shows that more than 40% of the world’s largest publicly listed companies have not appointed even one woman to their boards. Did they just blow your mind? It blew mine.

3rd Annual Public Company M&A Nuggets

We have posted the transcript from our recent webcast: “3rd Annual Public Company M&A Nuggets.”

– Broc Romanek

March 28, 2011

John Huber on Accounting Help for Law Firms

John Huber recently began a second career at FTI Consulting. In this podcast, John talks about his new career path, including:

– How does your new job differ from working at Latham?
– How do you envision partnering with law firms in your new position?
– Any thoughts on the current battle over the SEC’s budget?

On Wednesday, the SEC is holding an open Commission meeting to adopt rules that require the stock exchanges to maintain listing standards regarding independent compensation committees and advisors.

More on “The Burden of XBRL Costs on Smaller Companies”

I received quite a few emails in reaction to my recent blog regarding the costs for smaller companies to comply with the SEC’s upcoming mandatory XBRL filing requirement. Many folks believe I underestimated the costs that companies will bear. This is borne out by the poll results on XBRL costs, with 16% saying costs were as expected; 51% saying they were higher than expected and 16% said they were so high that they wish they weren’t public (none said costs were lower than expected and the rest said “what me worry?).

Hallador Energy CFO Andy Bishop forwarded me his letter to the SEC, which explains why he believes smaller companies should be exempted from mandatory XBRL. And Daniel Roberts sent me his blog entitled “Is XBRL expensive?” that analyzes the cost issue nicely, including 5 questions that companies should be asking XBRL vendors. I’m sure we haven’t heard the end of this issue…

Check out the piece in “The Accounting Onion” entitled “Has India Abandoned IFRS?

More on our “Proxy Season Blog”

With the proxy season in full swing, we are posting new items regularly on our “Proxy Season Blog” for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– TIAA-CREF Updates Governance Guidelines: No Big Deal
– Practice Pointers: Adjournments of Annual Meetings
– Voting by Mobile Devices & iPads in Corporate Elections
– Retail Proponents Survive Eligibility Challenges
– More on “Benchmarking the Number of ‘Executive Officers'”

– Broc Romanek

March 25, 2011

Congress and the SEC’s Budget: Desperately Seeking Mary

One of my favorite movies from the ’80s was “Desperately Seeking Susan” and not because I played with Rosanna Arquette in the sandbox when I was a tot or because Madonna was tremendous in the movie. It was just a great movie.

With Congress placing a big fat target on the SEC’s backside, the movie came to mind because they have called SEC Chair Mary Schapiro to testify so many times in recent weeks that I’m not sure I can accurately count them all (try counting them for yourself; see Dave’s recent blog on the budget fight). It’s clear that Congress intends to defang the SEC as much as it can – and it surely couldn’t come at a worse time given all the Dodd-Frank rulemaking it has on its plate (not to mention a lack of agency resources and the fact that the recent financial crisis is not in the distant background yet).

I certainly agree that the SEC can be improved, but how does Congress really expect senior management over there to do anything when they need to spend all their time testifying (or prepping to testify)? It’s beyond ridiculous. And it certainly sends the wrong message to mainstream journalists who don’t know better and feed hungrily off the “news” it gets from SEC Inspector General David Kotz, who has become too important in the eyes of those outside the agency. An all-powerful IG can’t be good for anyone in my opinion.

A member sent me this blog from the Project on Government Oversight entitled “SEC Employees Cited for Misconduct Rarely Face Punishment” along with this note:

The parallel of this to corporate whistleblowing is likely lost on POGO (and Congress). The rare exception (an actual violation) defines the rule and drives the process. Lots of noise, not much substance. Many complaints motivated by office politics. A presumption of organizational guilt (because organizations are perceived to be inherently bad). If the organization doesn’t investigate every allegation, it will be criticized – even though it’s demonstrably a poor use of scarce resources. Imagine if police work was done in the same way. They’d need to formally investigate every crackpot allegation.

Maybe Don Henley’s “All She Is Forced to Do Is Testify” is a better analogy…

A Word about David Becker: End the Witch Hunt!

And don’t get me started about the recent Congressional hearings (with more hearings to come) about former SEC General Counsel David Becker and his deceased mother’s Madoff investments. I’m not going to even bother reciting any of the outlandish claims made in a frivolous lawsuit or the theater that Congress is now engaged in. I’ll just note that David returned to the SEC in a time of need to serve his country two years ago – leaving a handsomely paid partnership – and this is how he is repaid? I guess no good deed goes unpunished.

Talk to anyone who has real knowledge about the SEC (not the mass media who refers to David as a former “chief council”) and you’ll not find a single person who doesn’t think that David is among the most honorable people you’ll ever meet.

Sorry for all the Friday ranting. Just had to get all this stuff off my chest. Back to straight reporting next week. And a side note: the SEC yesterday hired Anne Small as Deputy General Counsel – Anne hails from WilmerHale, one of many that have been hired from that firm during the past decade or so (egs. Meredith Cross, David Becker, Steve Cutler, Mark Cahn, Joseph Brenner).

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Expanded Whistleblower Regulations: A Potent Combination of IRS Strategies
– SEC’s Enforcement Provides Further Guidance on Cooperation Credit
– Board Communications: Using “In-House” Director Email Addresses
– FASB & IASB Joint Exposure Draft: Offsetting Assets & Liabilities
– Shortcomings of Chinese Listings in the US

– Broc Romanek

March 24, 2011

Say-on-Pay: A Fourth Failed Vote (and Perhaps a Fifth If You Do the Math)

Yesterday, as reported in this Bloomberg article and ISS’s Blog, Hewlett-Packard became the fourth company to fail to receive majority support for its say-on-pay, with 48% voting in favor. The company hasn’t yet filed its Form 8-K – when it does, I will add it to our list of Form 8-Ks filed by companies that fail to earn SOP majority support.

And yesterday, I blogged that Hemispherx Biopharma issued this press release announcing that it garnered 51% support for its say-on-pay ballot item. Well, a few members reviewed the company’s proxy statement and Form 8-K and concluded that the company didn’t do its math properly.

These members noted the proxy disclosure that “abstentions will have the same effect as a vote against the proposal” – but that the company didn’t follow that formula when calculating the vote for its Form 8-K. Without getting into the issue of whether the proxy disclosure is correct, it seems like the company didn’t follow the standards disclosed in its proxy statement, an important point to consider as I wrote about in the July-August 2010 issue of The Corporate Counsel (in the section entitled “How to Calculate Voting Result Percentages: Read Your Bylaws (and Compare with Your Proxy).” I do believe this problem is not just an isolated circumstance – as there still is a significant amount of confusion regarding the application of voting standards and the calculation of the vote itself.

Parsing Prudential’s 2011 Proxy Statement

Last week, I repeated Mark Borges’ analysis of General Electric’s proxy statement and all the innovative things they did. A few days ago, Prudential filed its proxy statement and it also contains quite a few innovative items (as could be expected since Peggy Foran’s arrival at the company last year), including:

3-page “State of the Union” letter, describing the work the board had done over the previous year on compensation and governance; note this letter is from the board, not the CEO

– Two-page summary at the beginning (pages 7-8) that includes business highlights and summary compensation information

– Highlight boxes on sustainability (pg. 24), corporate citizenship (pg. 23) and shareholder engagement (pg. 22)

The entire proxy statement is filled with color and charts and serves as a good example of an attempt to make disclosure inviting for shareholders. And don’t forget Peggy’s novel “Totes for Votes” campaign to bring in more retail votes, as she recently discussed during our “Conduct of the Annual Meeting” webcast.

Another Clawback Case: Beazer Homes

Here’s news from John Savarese and Wayne Carlin drawn from this Wachtell Lipton memo:

The SEC recently announced a settled enforcement action in which it obtained a “clawback” of prior compensation and stock sale profits from a CEO pursuant to Sarbanes-Oxley Section 304. SEC v. McCarthy, No. 1:11-CV-667-CAP (N.D. Ga. March 3, 2011). This case marks the second time the SEC has obtained this type of relief without alleging that the CEO in question personally engaged in any wrongdoing.

Section 304 requires a CEO or CFO to return incentive-based compensation to an issuer when a financial restatement occurs “as a result of misconduct. . . .” The SEC’s position is that the issuer’s “misconduct” alone is a sufficient predicate for this relief, and that it need not establish any personal misconduct by the CEO or CFO. The SEC’s position is supported by the one federal district court decision that has been rendered on this issue. SEC v. Jenkins, 718 F. Supp. 2d 1070 (D. Ariz. 2010).

The defendant in SEC v. McCarthy is the CEO of Beazer Homes USA, Inc. Beazer had previously restated its financial statements and entered into a settled cease-and-desist proceeding with the SEC, as well as a deferred prosecution agreement with the Department of Justice. The SEC also previously charged the company’s former chief accounting officer with violations of the antifraud provisions of the federal securities laws, but the CEO was never charged with any misconduct in any of these proceedings.

Under the Section 304 settlement, the CEO agreed to reimburse to the company $6,479,281 (comprised of bonus payments plus certain stock sale proceeds); 40,103 restricted stock units; and 78,763 shares of restricted stock. Although the SEC has been silent concerning its general approach to calculating the amounts recoverable under Section 304, this settlement may reflect a recognition that not all proceeds from the sale of stock are appropriately reimbursable. The SEC’s complaint alleges $7.3 million in stock sale profits during the relevant period, yet the portion of the settlement attributed to stock sale proceeds is $772,232.

Finally, the SEC has never publicly articulated the criteria it applies in determining whether or not to pursue such no-fault Section 304 relief. Greater transparency about the Commission’s criteria would be in the public interest. Now that the SEC has had some initial success in establishing that it can recover substantial sums from individuals who are not accused of any wrongdoing, it would be appropriate for the SEC to provide some explanation concerning when it will seek this extraordinary form of relief.

Meanwhile, as noted in this Bloomberg article, the directors of Beazer Homes have been sued alleging that they failed to act in the best interest of shareholders when the directors approved pay raises for the company’s executives while Beazer had $34 million in losses.

– Broc Romanek

March 23, 2011

Say-on-Pay: A Third Failed Vote (and Almost a Fourth)

Yesterday, Shuffle Master filed this Form 8-K to reveal its become the third company this proxy season to fail to achieve a majority vote for say-on-pay as only 45% of shareholders voted in favor (here’s the other two). And Hemispherx Biopharma revealed it almost became the fourth with only 51% support as reflected in its Form 8-K.

In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 739 companies filing their proxies, 44.3% triennial; 3.4% biennial; 48.8% annual; and 3.4% no recommendation. As Dave blogged a few days ago, the annuals have now passed the triennials…

PCAOB Ramps Up Project to Rethink the Auditor’s Report

Yesterday, the PCAOB held a public meeting regarding its project on how best to improve the auditor’s report. Here’s the press release – and statements from Chair Doty and three other PCAOB board members (and here’s related presentation slides from a meeting with the PCAOB Investor Advisory Group last week).

It was a packed house as this project could lead to the most significant changes in reporting by auditors since the 1930’s. A concept release is expected this Summer. This project is long coming, and comes on heels of recommendations made in October 2008 by the US Treasury Advisory Committee on the Auditing Profession (recommendations were also made in the 1970’s by the “Cohen Commission” but were not fully acted on).

SCOTUS Supports Plaintiff’s Bar in Matrixx

Yesterday, the US Supreme Court decided Matrixx Initiatives Inc. v. Siracusano, a case examining whether failure to disclose non-statistically adverse data can give rise to fraud claims. The Court upheld a decision by the Ninth Circuit Court of Appeals, determining that investors stated a claim and adequately pleaded materiality under the federal securities laws. Here’s analysis from Kevin LaCroix’s “D&O Diary Blog.” And we’ll be posting memos as they arrive in our “Materiality” Practice Area (such as this Cooley memo, Simpson Thacher memo and this Morrison & Foerster one).

– Broc Romanek

March 22, 2011

Big Changes in the OTC Marketplace Dynamics

Here’s news from Bob Dow of Arnall Golden Gregory:

During this February and March, a large number of companies have exited from the OTC Bulletin Board (OTCBB). Many of these have shifted to the OTCQB platform operated by the organization formerly known as “Pink Sheets,” which is now called “OTC Markets.”

The companies were frequently caught by surprise because the move was involuntary and not well publicized by OTCBB or the market makers. Unbeknownst to the company, the sponsoring market maker ceased quotation on OTCBB and began anew on OTCQB. Without a market maker on OTCBB the company’s stock would no longer be eligible to be quoted on OTCBB. In some cases, the reporting of trades on popular financial web sites was not transitioned smoothly due to the sudden unannounced change. Initially, OTCBB reported some of the stocks’ deletion as due to “Failure to comply with Rule 15c-2,” which could have been taken to imply some sort of intentional violation of the securities laws by the company. In mid-February, the OTCBB started reporting the deletions as “Ineligible for quotation due to quotation inactivity.” Here’s a listing of deletions.

Since the 1990s, OTCBB has been a popular medium for trading stocks that were not listed on a stock exchange. Companies are not really “listed” on OTCBB. Each company’s stock is quoted on the OTCBB if a market maker begins posting quotes for the stock there. OTCBB is operated by FINRA, but in September 2010, FINRA entered into an agreement to sell the OTCBB to the investment banking firm Rodman & Crenshaw. In 2010 FINRA also increased the fees it charges market makers to quote stocks on OTCBB, to $6.00 per security per month. OTCQB does not charge any such fee.

So early in 2011, a few market makers began quietly moving their quotations to OTCQB. At some point a critical mass was achieved and the herd started moving rapidly in February. By some accounts, more than 800 companies have left the OTCBB so far in 2011. One wonders if this is what FINRA and the Rodman firm had in mind when they agreed to the sale. It seems like the value of the franchise could be diminished if there is a sufficient run-off. Here are others that have commented on this development: Reverse Merger Report and RedChip Companies Blog.

Pre-Proposal Comment Submission: If the SEC Builds It, Will They Come?

It’s been a while since the SEC made it as simple as an email to submit a comment letter on a rule proposal, which in turn have raised the number of “casual” comments submitted from the men & women “on the street.” Lately, I have been wondering if the Dodd-Frank proposals got more of these types of comments than usual because of their high profile nature? Particularly since the SEC took the unusual step soon after Dodd-Frank was enacted to allow for comment on its upcoming rulemakings, even before actual proposals were out.

The answer is “not really.” Although a high percentage of comments posted in the SEC’s pre-proposal portal are from individuals, there are only a handful for most of topics as many of the “regulars” who submit comments didn’t bother at such an early stage (with some exceptions such as conflict minerals).

I do note that one person – Robin McLeish – submitted a comment letter on a majority of the topics in the portal. Her comment letters vary but here are two of them as examples:

1. On the “Office of Minority and Women Inclusion“: “Hi and thanks for the chance to comment. I saw this article on CNN Money website. I feel that the Treasury should be in charge of the money and it should be backed by mineral assets. The fed can set interest rates.”

2. On “Exemptions for Certain Advisors“: “Hi and thanks for the chance to comment. I saw this article on CNN Money website. I feel that no one should be exempt from following the laws of the constitution. Those that do not in this one nation under God will have to answer to him on judgment day and I will be there pointing my finger at them.”

Conduct of the Annual Meeting

We have posted the transcript from our recent webcast: “Conduct of the Annual Meeting.”

– Broc Romanek

March 21, 2011

SEC Budget Fight: Looking Ahead to 2012

The SEC’s ongoing budget battle hit home for me last week, when one night I had a dream that I was still working at the SEC and then was fired due to budgetary constraints (yes, I do sleep on occasion). While two former supervisors fired me in rapid succession, workers turned my office into a storage room (presumably to store whistleblower complaints). I am not sure I want to do any Freudian or Jungian analysis of this dream, but suffice it to say that with government shutdowns being averted at the last minute on a fairly frequent basis, the budget of the SEC and other government agencies remains front and center, perhaps even in the subconscious.

Even while Congress has yet to get its act together for the SEC’s fiscal 2011 appropriation, talk continues regarding the 2012 appropriation for the SEC. In testimony last week before the Subcommittee on Financial Services and General Government of the House Committee on Appropriations, Chairman Schapiro continued the call for a significantly expanded SEC budget in 2012, with a $1.407 billion appropriation that represents a $264 million increase over the continuing resolution level under which the SEC is currently operating. (Note that under Dodd-Frank, the SEC’s appropriation is assured to be deficit-neutral, because the SEC is required to adjust the fee rates so that the amount collected will match the total appropriation – not quite self-funding, but getting closer.)

If the SEC should get its 2012 appropriation, it plans to add a whopping 780 positions, with 60 percent of those positions dedicated toward implementing Dodd-Frank. Outside of Dodd-Frank, Corp Fin would benefit from 37 new positions dedicated toward more frequent disclosure reviews of the largest companies.

With no clear end in sight for the 2011 budget, perhaps the 2012 appropriation is but a dream – and hopefully a dream that ends up better than mine did.

Annual Frequency Pulls Ahead in Say-on-Pay March Madness

If your brackets had predicted “Every One Year” as the winner of the most popular Say-on-Pay frequency selected by stockholders under the Dodd-Frank Act mandated Say-on-Frequency vote (otherwise known as the “final four” choices – one year, two years, three years or abstain), then the news from Mark Borges’s Proxy Disclosure Blog on is looking pretty good to you. In his weekly Say-on-Pay Roundup, Mark notes: “The big news this week is that annual vote recommendations for future “Say on Pay” votes moved past triennial vote recommendations for the first time this year. I logged 225 new filings of proxy statements complying with the shareholder advisory vote requirements of the Dodd-Frank Act.

This brings the total for the year to 739 filings.” While perhaps it is still too early to tell, a stockholder voting trend that has clearly favored an annual Say-on-Pay vote may be influencing the recommendations that boards are making with regard to the frequency of the vote. One recent example that Mark cites which caught my eye is a company where the triennial vote nudged out the annual vote by the narrowest of margins (49.98% for triennial versus 49.36% for annual), but yet the board determined to go with an annual Say-on-Pay vote.

Developments in Debt Restructurings & Debt Tender/Exchange Offers

We have posted the transcript for’s recent webcast: “Developments in Debt Restructurings & Debt Tender/Exchange Offers.”

– Dave Lynn

March 18, 2011

SEC Proposes to “Readopt” Rules 13d-3 and 16a-1

In what might be one of the more unusual rulemakings coming out of the Dodd-Frank Act, yesterday the SEC proposed to readopt relevant portions of Rules 13d-3 and 16a-1 so as to preserve the status quo with those rules as they apply to security-based swaps following the July 16, 2011 effective date of Exchange Act Section 13(o), which was added by Section 766 of the Dodd-Frank Act. Section 13(o) said that “[f]or purposes of this section and section 16, a person shall be deemed to acquire beneficial ownership of an equity security based on the purchase or sale of a security-based swap, only to the extent that the Commission, by rule, determines after consultation with the prudential regulators and the Secretary of the Treasury, that the purchase or sale of the security-based swap, or class of security-based swap, provides incidents of ownership comparable to direct ownership of the equity security, and that it is necessary to achieve the purposes of this section that the purchase or sale of the security-based swaps, or class of security-based swap, be deemed the acquisition of beneficial ownership of the equity security.” The proposing release provides an excellent discussion of the framework for determining beneficial ownership, and also discusses the application of that framework to security-based swaps. The proposing release does note that the use of security-based swaps “has not been frequently disclosed in Schedule 13D and 13G filings.”

The SEC Staff consulted with the Federal Reserve, the Office of the Comptroller of the Currency, the Farm Credit Administration, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation and the CFTC. Following these consultations, the SEC determined to propose to readopt, without any changes, portions of the rules enabling determinations of beneficial ownership to be made for purposes of Exchange Act Sections 13(d), 13(g) and 16 of the Exchange Act. The proposal to readopt the portions of the rules is intended to clarify that, after the effective date of Exchange Act Section 13(o), security-based swaps will remain within the scope of the rules “to the same extent as they are today.”

Comments on the proposed readoption rulemaking are due April 15, 2011.

A “Deep Thoughts” Shareholder Proposal No-Action Letter

Many of the shareholder proposal no-action letter responses coming out of the Staff at this time of year can seem very company-specific or repetitive, so it is exciting to occasionally come across a letter that delves into some new topics. This recent response to Alaska Air is definitely one of those letters. It goes deeply into the Rule 10b-5 private cause of action, damages, and the anti-waiver provision of the Exchange Act. In getting a favorable (i)(2) response from the Staff, Alaska Air was ably assisted by my radio show co-host Marty Dunn at O’Melveny & Myers. This letter proves yet again that the Staff’s job in dealing with shareholder proposals is not by any means easy!

March-April Issue: Deal Lawyers Print Newsletter

This March-April issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– Never Say Never, But, You May Have to Wait Two Years: Delaware’s Airgas Decision
– How Process Flaws Can Rewrite Your Merger Agreement: Process Flaws, Remedies and Del Monte
– The Validity of Stockholders’ Representatives after Aveta
– Tips for PE Firms Participating in Stalking Horse Auctions

If you’re not yet a subscriber, try a no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Dave Lynn